A Further Healthy Rise in Reserves


Monday, November 06, 2017 9:08AM /FBNQuest Research

Gross official reserves increased by US$1.33bn in October to US$33.83bn. Since the CBN stepped up its fx interventions in March by launching multiple currency practices (MCP) from sales previously of just US$1.5m per day, its reserves have risen by US$3.5bn. 

Higher oil exports have plainly been a factor but it would be churlish not to acknowledge that the unorthodox practices have also helped. By way of caution, we should stress that the figures provided by the CBN are gross and mask the swap transactions it has entered into with local banks.

The pick-up in oil production has been an obvious positive for accumulation. Officials are encouraging the view that it is back at, or close to the 2.0 mbpd level. Further, the FGN plans to raise US$2.5bn in Q4 2017 from additional Eurobond sales, for which the market has a good appetite. Separately, it is looking to refinance NTBs into short=term fx paper within a ceiling of US$3bn. 

The CBN will be boosted by the positive signals from the investors’ and exporters’ window (NAFEX). Turnover (ie both sides of trades) from its launch in late April through to 03 November totals US$18.9bn. 

The latest boost has been provided by the return of the offshore investor to local debt markets. We understand that the CBN’s fx supply to NAFEX is now negligible and we know that it has reduced its supply to other windows such as that for the retail segment for invisibles. These various positive developments tell us that gross reserves are heading towards the US$40bn mark, which level they last touched in February 2014.   

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In the past month the CBN’s position has strengthened and its confidence grown. We do not see a major change to its MCP either this year or next. The current arrangement suits the authorities, and they are no real domestic pressure to change tack. 

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